Bloomberg News

South Africa’s Gordhan Prefers FDI Over Temporary Flows

April 11, 2012

South Africa is seeking to boost foreign direct investment to reduce the country’s reliance on short-term portfolio inflows, Finance Minister Pravin Gordhan said.

“The one lesson of the post 2008 crisis is that we don’t want short-term capital that then creates its own volatility and uncertainty,” Gordhan said in a speech at Sun City, in North West province, today.

South Africa relies on portfolio inflows to fund its current account deficit, which the National Treasury estimates will widen to 4.3 percent of gross domestic product this year, from 3.6 percent in the final quarter of 2011.

Direct investment by foreigners, including takeovers and building of plants, jumped to 42.1 billion rand ($5.3 billion) last year from 9 billion rand a year earlier, the central bank said in its quarterly bulletin on March 19. Most of the new investment came from the U.K. and China and flowed into mining, financial services and telecommunications.

South Africa’s government plans to “considerably reduce” the time it takes to open a business in the country to help attract investment, Trade Minister Rob Davies said at the same conference.

Domestic growth prospects will depend on what happens in the global economy, Gordhan said.

“The recent uncertainties around Spain and the European context sets us back a little bit,” he said. “The U.S. is showing a small but significant improvement. There are small setbacks. The trend line is still an improving one.”

The government is “cautiously optimistic” that economic growth will be higher than the 2.7 percent expansion forecast in February, Gordhan said on April 1.

To contact the reporters on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net; Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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